Align Technology (ALGN)
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 1/6/14 Sign up for Cabot Wealth Advisory—it's free!
For more than a century, orthodontists have been correcting malocclusions (poorly aligned teeth) with braces, retainers and other hardware, collectively called appliances.
Functionally, these appliances work by using wires and rubber bands to push or pull teeth in the desired directions. I’ve never worn them, but I paid for two of my kids to go through the treatment and it worked—though it was sometimes painful.
No doubt many of you have had experiences, too. And no doubt some of you are orthodontists. It’s an $8 billion industry.
But disruption is slowly taking hold, thanks to Align Technology's (ALGN) Invisalign, which replaces the hardware of braces with custom-made sets of clear polyurethane aligners.
They work like braces, and the costs are similar, but the big differences are these:
While metal braces are typically updated every six weeks, Invisalign’s aligners are replaced every two weeks. The aligners put less force on the teeth thus create less pain. Also, there are no rough edges to abrade tongues and cheeks.
While metal braces require a skilled orthodontist at most stages of treatment, the Invisalign system needs a dentist mainly at the start of the process when an impression is taken.
That impression is scanned and converted to a 3D model. And Invisalign’s software then develops a plan for moving each individual tooth from its current position to its target location, over time, and creates a set of 20 aligners to do the job.
The aligners are nearly invisible. In fact, most people don’t notice you’re wearing them. They are worn roughly 22 hours a day, and removed when brushing your teeth, flossing and eating. As a result, the tooth decay associated with braces that trap food is minimized. And as for food, you can eat anything you want!
The company has treated more than 1.5 million patients in 45 countries. Most notable of these is China, which Invisalign entered in 2011 and where business is booming.
Of course, many of these Chinese never had the opportunity for traditional wire braces, so we can’t say the Invisalign is disruptive for them. But in developed countries, Invisalign is slowly usurping the role of the old wire braces. I believe most of the firm’s customers are thrilled about that, and I believe Invisalign will continue to grow for many more years as uncomfortable wire braces steadily fall out of favor.
Financially, the firm is well managed. Revenues have grown in each year of the past decade (17% in 2012.) and earnings growth has been good, too, though not quite as linear. The last loss was in 2006.
After-tax profit margins have tended to run in the teens—and never below 11% in the last the years, but the latest profit margin was a record-high 21%. I like that trend a lot. Also, the company has no debt.
As for the chart, ALGN came public in 2001, and its general trend in recent years has been up.
Back in October, there was a big, high-volume spike higher in response to the superb third-quarter earnings report (revenues up 21% and earnings up 62%), and since then the stock has been trading in a comfortable range between 52 and 60, slowly fading out of the limelight. In the meantime, the stock’s 50-day moving average has arrived at 56 to offer support. I think it’s a decent buy right here, and that ALGN will eventually break out to new highs.
So, you could simply invest in Invisalign right here. Alternatively, you could delay buying until the stock breaks out to new highs—ideally on big volume. For more information on Cabot Stock of the Month, click here.
By Mike Cintolo, Chief Analyst, Cabot Top Ten Trader
From Cabot Wealth Advisory 11/7/13 Sign up for free Cabot Wealth Advisory
I think the throw-a-dart-and-make-money phase is, unfortunately, over. This summer was a great time for growth stock investors, but October saw many highfliers come back to Earth, while the broad market picked up steam. This week, we’re actually seeing some money flow back into growth names as interest rates and the U.S. dollar pick up steam.
This rotation isn’t a bad thing, but the crosscurrents among individual stocks and sectors means you have to pick your spots when doing new buying. Of course, I’m always selective when recommending new stocks (sometimes I’m too picky), but now I’m really focused on stocks that haven’t made huge runs in recent months—or, if they have, they've based out for at least four or five weeks—have great growth prospects, and have shown big-volume buying of late, preferably after earnings.
One name I like is Align Technologies (ALGN), a firm that recently blew away earnings estimates and gapped to new highs as a result. Here’s what I wrote about the stock in Cabot Top Ten Trader two weeks ago:
“Align Technology’s big idea is Invisalign, a clear, nearly invisible plastic appliance that straightens teeth in a series of two-week steps. Invisalign appliances look like retainers, but they move teeth into line without the shiny array of metal strips and wires that make braces so uncomfortable in every sense. Align Technology also makes CAD/CAM software and dental scanners, but the Invisalign system is responsible for more than 90% of the company’s revenue. The firm has been expanding rapidly into the Asia-Pacific region, which is the fastest-growing region in the world for orthodontic work. The most recent evidence of Align Technology’s success came with the company’s Q3 earnings report on October 17. The company reported revenue of $165 million and EPS of 42 cents, topping consensus estimates of $159 million in revenue and earnings of 30 cents per share. Management also issued guidance for Q4 of $169 million and 41 to 43 cents in earnings, well above analysts’ previous estimates. All in all, Align Technology looks to have a product with a distinct advantage over its main competition that’s finding a widening customer base.”
Probably my main worry with ALGN is that the valuation has always been rich—it’s trading at 44 times earnings, and while I am not a valuation guy, I know the stock will have to keep posting better-than-expected quarters to stay in favor.
I think it can do that. The third quarter’s revenue growth of 21% was the fastest since mid-2012, and earnings of 42 cents per share were a whopping 12 cents above estimates. Moreover, the stock wasn’t on many radar screens until its powerful earnings gap three weeks ago, and the tight pause since then tells me few big investors are willing to sell their shares.
I think ALGN is buyable around here, with a stop near 50 or 51 to keep risk in check. For further updates on ALGN, consider a trial subscription to the Cabot Top Ten Trader. Each week you’ll get ten strong momentum stocks like ALGN delivered to your inbox. For details, click here.
Align Technology (ALGN): Revolutionizing the Orthodontics BusinessBy Timothy Lutts, Editor of Cabot Stock of the Month
From Cabot Wealth Advisory 7/30/12 Sign up for free Cabot Wealth Advisory e-newsletter
There's an old phrase used to express the state of the market when all the news is rosy, all the investors are bullish, and hundreds of stocks are hitting new highs. It's "Priced to Perfection" and it's code for, "Time to Think About Selling."
Well, I don't know a similar phrase to describe the opposite condition, so I'm suggesting one today: "Priced to Perdition." It means all the news is terrible, all the investors are bearish, and very few stocks are hitting new highs.
We're not exactly there today, but we were definitely there back in late 2008 (2009 was great fun), and I think we were there again in May and June of this year, when Europe was on the brink of disaster. Since then, stocks have strengthened—though they've thrown in enough sharp drops along the way to keep investors fearful—and as a result, I'm pretty bullish about the months ahead.
And I'm most bullish, as always, about companies that are growing sales and earnings rapidly, that have revolutionary new technologies and services, and whose charts tell me they're becoming increasingly well regarded by growing numbers of investors.
One company that fills the bill today is Align Technology (ALGN), a California company that's revolutionized the orthodontics business.
The core of Align's business is a computer system that enables the creation of customized clear plastic 3-D "aligners" that do the same job as ugly metal braces. These aligners are removable by the user, to enable brushing, flossing and eating corn-on-the-cob.
They're effective; the average user goes through a set of 24 over the course of a year that progressively shifts his teeth into the proper position. And of course, they're patented, which means that everyone who wants to avoid the problems of metal braces has to pay Align Technologies.
The company is well managed; it's grown revenues every year of the past decade, and it's grown earnings every year since 2008. In the most recent quarter, revenues grew 21% to $146 million, earnings soared 70% to $0.34 per share. And the after-tax profit margin was a robust 19.6%.
I like the whole idea, and if you like it too, I recommend you take a no-risk trial subscription to Cabot Top Ten Trader, which recently recommended the stock and which will keep you up to date with ongoing advice about it. For details, click here.
|Align Technology (ALGN)
2560 Orchard Parkway
San Jose, CA 95131
|Index Membership: N/A
Industry: Medical Appliances & Equipment
Full Time Employees: 3,176
11/7/13 Align Technology (ALGN): Recently blew away earnings estimates
7/30/12 Align Technology (ALGN): Revolutionizing the Orthodontics Business